CONTRACTORS: CONSULT YOUR INSURANCE BROKER REGARDING YOUR CGL POLICY

shutterstock_601853483Contractors:  do yourself a favor and consult your insurance broker regarding your commercial general liability (CGL) policy.   Do this now, especially if you subcontract out work.

 

CGL policies contain a “your work” exclusion.  The CGL policy is written such that it excludes “‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” This exclusion will be raised in the post-completion latent construction defect scenario. (There are other exclusions that will be raised to a defect discovered during construction.)  Certain policies will contain a subcontractor exception to this “your work” exclusion.  You WANT this exception- no doubt about it so that this exclusion does not apply to work performed by your subcontractors.  Without this subcontractor exception, truth be told, this “your work” exclusion is a total back-breaker to contractors.   It will give your insurer an immediate out for many latent defect property scenarios since excluded from coverage is property damage to your work including work performed by your subcontractors.

 

In a recent opinion, Mid-Continent Casualty Co. v. JWN Construction, Inc., 2018 WL 783102 (S.D.Fla. 2018), an owner discovered water intrusion and damage at his property.  He sued the general contractor and the general contractor’s insurer filed a separate action for declaratory relief claiming it had NO duty to defend or indemnify its insured—the general contractor—in the underlying suit.  The court agreed because the contractor did not have the subcontractor exception to the “your work” exclusion.

 

If work was performed by JWN [contractor] or on JWN’s behalf-here by a subcontractor-then the “your work” exclusion applies.  Historically, insurers could be liable under commercial general liabilities policies resembling the policy in the instant case for certain types of damages caused by subcontractors….Nonetheless, insurers do possess the right to define their coverage as excluding damages arising out of a subcontractor’s defective work by eliminating subcontractor’s exceptions from the policy. An insurer is only liable for a subcontractor’s defective work when the “your work” exclusion does not eliminate coverage for work performed by a subcontractor….In conclusion, the insurance policy in this case excluded coverage for work performed not only by JWN, but also by JWN’s subcontractors.

JWN Construction, Inc., supra, at *4.

 

 

This ruling meant that the general contractor’s CGL insurer had no duty to defend or indemnify its insured—again, the contractor—for the defects or resulting water damage.  A total killer illustrating the absolute importance of the subcontractor exception to the “your work” exclusion in your CGL policy.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CGL INSURER’S DUTY TO DEFEND INSURED DURING PRE-SUIT 558 PROCESS: MAYBE?

shutterstock_287900015In earlier postings, I discussed the issue of whether Florida Statutes Chapter 558′s pre-suit construction defects process triggers a CGL insurer’s duty to defend.  The issue was whether Florida’s 558 pre-suit notice of a construction defect and repair process met the definition of “suit” within a standard CGL policy.

 

A standard CGL policy defines the term “suit” as:

 

“Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

 

The Florida Supreme Court in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 42 Fla. L. Weekly S960b (2017) held that Florida’s 558 process is an “alternative dispute resolution proceeding” within the definition of suit in a CGL policy.  However,  since it falls within an “alternative dispute resolution proceeding,” the insurer’s consent is required to invoke its duty to defend its insured during this pre-suit process.  This is especially true since a recipient’s participation in the pre-suit 558 process is voluntary and not mandatory and this process does not produce any binding results.

 

Accordingly, an insured-contractor or subcontractor that receives a 558 notice of a construction defect should absolutely tender the notice to its CGL insurer.  No doubt about it.  In doing so, the insured should inquire and perhaps encourage the insurer to participate in the process and defend the insured’s interests.  If the insurer is not willing to participate in this process, this does not mean the insured should refuse too.  Rather, the insured simply needs to recognize that it will be responsible for its own fees and costs in doing so.  The insurer’s consent is required to invoke its duty to defend the insured during this process.

 

This opinion, unfortunately, doesn’t provide a whole lot of value (in my opinion) because if an insurer does not consent to participating in the process and defending its insured, it puts the insured in a position where it may be better off being sued where the insurer will now defend it and engage the consultants to investigate the claimed defects.  Many insurers, however, will capitalize on the 558 process by providing a defense to its insured as opposed to simply waiting for the inevitable construction defect lawsuit.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ADDITIONAL INSURED OBLIGATIONS AND THE UNDERLYING LAWSUIT

images-1As a general contractor, you understand the importance of being named an additional insured under your subcontractors’ commercial general liability (CGL) policies.   Not only do you want your subcontract to express that a subcontractor’s CGL policy is primary and noncontributory to your policy, but you want it to express that the subcontractor must identify you as an additional insured for ongoing and completed operations.  Even with this language, you want the subcontractor to provide you with their additional insured endorsement and, preferably, a primary and noncontributory endorsement.    These additional insured obligations are important to any general contractor that has been sued in a construction defect / property damage lawsuit.

 

In the recent decision in Core Construction Services Southeast, Inc. v. Crum & Forster Ins. Co., 2016 WL 5403578 (11th Cir. 2016), a general contractor built a residential development.  The general contractor required its roofing subcontractor to identify it as an additional insured under the roofer’s CGL policy.   The general contractor was sued with the lawsuit asserting that the roofs were installed incorrectly.  The general contractor tendered the defense of the claim to the roofer’s CGL insurer and the insurer refused to provide the defense because there was no “property damage” within the definition of the CGL policy (“physical injury to tangible property…”).    The general contractor then filed a lawsuit against the subcontractor’s insurer arguing that the insurer was obligated to defend and indemnify it since the general contractor was an additional insured under the subcontractor’s CGL policy.  The trial court, and as affirmed by the Eleventh Circuit Court of Appeal, held that the insurer owed no duty to defend or indemnity the general contractor because there was NO asserted property damage within the meaning of the policyIf there was no property damage then there was no obligation for the roofing subcontractor’s insurer to defend the general contractor as an additional insured under the subcontractor’s CGL policy. 

 

The underlying lawsuit only claimed that the roofs had been damaged but did NOT claim that the defective roofs had caused damage to other property (other components of the building).  The omission of this assertion was important because the complaint was not pled to trigger insurance duties, such as additional insured obligations, since the cost to repair or replace the damaged roof would not be covered by the subcontractor’s CGL insurer.  Rather, costs to replace or repair damage caused by the subcontractor’s defective roofing installation would be covered; however, such damage was not pled in the underlying complaint.   Remember, the insurer’s duty to defend is only triggered based on allegations in the underlying complaint so without such allegations, there is no duty

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CONSTRUCTION DEFECT INDEMNITY OBLIGATIONS – COVERED VS. NON-COVERED CGL CLAIMS

If you are a contractor or subcontractor and a construction defect claim is asserted against you, then you have tendered such claim to your commercial general liability (CGL) insurer.  No doubt about it.  In doing so, you have wondered whether your CGL insurer will indemnify you for the damages asserted against you by the third-party.  You have wondered whether the damages asserted against you are covered by your CGL policy.   If you have not wondered and asked these questions, then you should!  Below is a portion of a presentation I recently put on regarding construction defect indemnity obligations under CGL policies and, particularly, covered claims versus non-covered claims.  

 

Download (PDF, 195KB)

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.